Eco-500

In: Business and Management

Submitted By everett3333
Words 1098
Pages 5
1. Using supply and demand and competitive analyses, explain what happens to a pharmaceutical company’s revenues and profits from an individual drug once it loses its patent protection. Then identify at least one strategy the company can use to mitigate the losses; be sure to support your suggestion using economic analysis. Pharmaceutical companies enjoy patent protection in the US and most other countries. The patent protection establishes a barrier between the company and competitors for a number of years. The duration of the protection is different for different types of drugs. The protection allows the company to be the sole producer of the drug. This creates a monopoly, enforced by government regulations, while the costs of development and testing are recouped. Once the patent protection expires, competitors are legally able to manufacture the drug. These drugs are referred to as generic drugs. They do not incur the costs for development or clinical testing and are able produce the drugs for the cost of manufacturing. They may also derive the benefit of patented drugs existing marketing campaign and customer base. With the loss of patent protection the company with the patent will see revenues and profits fall if the drug is in demand. Competitors will manufacture generic versions. One strategy to mitigate the loss pursue litigation against competitors. Challenging the competitors in court can slow the production of generics and interfere with their marketing of the product. The company can also license another company to produce the generic drug. By accepting a fee or percentage of sales from regional manufactures, the company earns profits from competitors while the competition operates free from the concern of litigation and can be endorsed by the company as an acceptable substitute. 2. Discuss each of the pricing strategies below. What conditions are…...

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